China’s party congress: what it means for investors

On 18 October, China will hold its 19th Party Congress, which will provide broad indications for economic policy in the coming years. Pimco’s emerging markets portfolio manager Issac Meng examines what investors should watch for from the twice-a-decade leadership reshuffle.

Meng said the consensus is that President Xi Jingpin will centralise power in this upcoming meeting, but the question is to what degree his power will be centralised.

‘If President Xi’s power is strongly reinforced, the 19th Party Congress could be a defining moment for the next decade essentially, the start of a new political cycle,’ he noted in a post, adding that there are three developments that investors should watch closely.

The first development is whether President Xi will be elevated to a paramount leadership position and whether his ideology – ‘Xi Jinping thinking’ – will be crystalised and endorsed as the dominant party ideology.

Secondly, whether there will be radical institutional changes to the party leadership, such as the composition of the Standing Committee of the Politburo and the conventions surrounding retirement. Whether such changes could open the door for leadership terms longer than the usual two five-year terms.

Last but not the least, with the changes to the Politburo and the Standing Committee, who will lead the macroeconomic team? The vice premiers, the cabinet members and the People’s Bank of China governor Zhou Xiaochuan are all likely to be replaced after the upcoming Party Congress, he said.

Macro implications

According to Meng, although specific economic policies of 2018 are not laid out at the October meeting, they will be set by the new leadership closer to year-end, at the annual Central Economic Work Conference.

‘We expect that economic policy in the coming year will be a continuation of the current focus on “financial risk control and macro stability. Somewhat slower growth around 6% to 6.5% growth from 2018 to 2020 will likely be the target, and monetary policy will likely maintain its hawkish bias.

‘Financial regulation will be reinforced, property curbs could be further tightened, and loose fiscal policy could be reined in gradually.'

Furthermore, the new Financial Stability and Development Commission (FSDC), a vice-premier-level group created in July, will have the task of closely coordinating monetary, financial and fiscal policy going forward so as to suppress the types of systemic financial risk that culminated in the severe market shocks of 2015–2016.

‘The creation of the FSDC signals the strong will in China to achieve a much more coordinated and coherent policy focused on macro stability, and the newly appointed vice premier running it will be key in shaping macro policy,' he added.

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